Patriot Scientific (via Holocom) has apparently entered into a venture with Scripps Secured Data, Inc (SSDI).  I like this strategic move. An earn-out agreement can be a good vehicle for all parties involved and is frequently used by venture capital arms of large corporations.  

The venture capital arms of entities like Intel and IBM frequently enter into earn-out agreements.  In fact, many “start-ups” in the Silicon Valley are actually the product of earn-out agreements from large corporations like Intel and IBM.  For all intents and purposes, Patriot (Holocom) has brought something of value to the table; and if Patriot (Holocom) can achieve the specific milestones in the contract then Patriot (Holocom) will be rewarded a very lucrative earn-out incentive.  Many wealthy venture capitalists made their fortunes via earn-out agreements.  I would not spend much time worrying about the junior lender; I believe that we should assume that the Junior lender must be affiliated with the Scripps side of the transaction.

We are also left to wonder if Scripps Ventures is behind the SSDI venture with Patriot (Holocom).  Scripps Ventures has traditionally been the venture capital arm of E.W. Scripps Company (E.W. Scripps has a $7 billion dollar market cap and Fortune Magazine has deemed it to be the 2nd most admired media company in the world).  Scripps Ventures’ investment portfolio has contracted in recent years (from a high of over $100+ million in misc. investments).  However, since 2004, there are signs that the Scripps Ventures may be back in action…

Take notice that E.W. Scripps Company also owns United Media; United Media is another large entity (like Sony) that truly understands the importance of preserving “licensed” property. Check out www.scrippsventures.com   Hmmm…

In the future, I believe that we can expect more deals with this type of framework (assuming that this “pilot” is successful).  And as these deals become a “routine” PTSC operating practice, we can expect to be dished fewer and fewer details as Shareholders.

At the end of the day, we need to remember that Patriot’s organic strengths are shifting away from R&D and product distribution.  I truly believe that we need to “read between the lines” and understand what we can accomplish by “selling” the Secure Communications Raceway. There are many moving parts here... 

Strategically, I believe that this is a watershed transition.  Great News...

All IMHO…